年 報 2011 Annual Report 年 報 Annual Report

Transcription

1 2011 Annual Report

2 Contents Page Corporate Information 1 Chairman s Statement 2 Management Discussion and Analysis 4 Directors and Senior Management Profile 8 Corporate Governance Report 10 Report of the Directors 17 Independent Auditor s Report 25 Consolidated Income Statement 26 Consolidated Statement of Comprehensive Income 27 Consolidated Statement of Financial Position 28 Statement of Financial Position 30 Consolidated Statement of Changes in Equity 31 Consolidated Cash Flow Statement 33 Notes to the Financial Statements 34 Five-year Financial Summary 98 ALLTRONICS HOLDINGS LIMITED Annual Report 2011

3 Corporate Information DIRECTORS Executive Directors Mr. LAM Yin Kee (Chairman) Ms. YEUNG Po Wah Mr. SO Kin Hung Non-executive Director Mr. FAN, William Chung Yue Independent Non-executive Directors Ms. YEUNG Chi Ying Mr. YAU Ming Kim, Robert Mr. LEUNG Kam Wah REGISTERED OFFICE Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY Cayman Islands HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS Room 1108, 11/F Eastwood Centre No. 5 A Kung Ngam Village Road Shau Kei Wan Hong Kong COMPANY SECRETARY Mr. LEUNG Fuk Cheung INDEPENDENT AUDITOR PricewaterhouseCoopers AUDIT COMMITTEE Ms. YEUNG Chi Ying (Chairman) Mr. YAU Ming Kim, Robert Mr. LEUNG Kam Wah PRINCIPAL BANKERS The Hong Kong and Shanghai Banking Corporation Limited Hang Seng Bank Limited Standard Chartered Bank (Hong Kong) Limited SHARE REGISTRARS AND TRANSFER OFFICE In Hong Kong Tricor Tengis Limited 26/F, Tesbury Centre 28 Queen s Road East Hong Kong In Cayman Islands Butterfield Fulcrum Group (Cayman) Limited P. O. Box 705 Butterfield House 68 Fort Street, George Town Grand Cayman, Cayman Islands WEBSITE STOCK CODE 833 ALLTRONICS HOLDINGS LIMITED Annual Report

4 Chairman s Statement On behalf of the board (the Board ) of directors (the Directors ) of Alltronics Holdings Limited (the Company, and together with its subsidiaries, the Group ), I am pleased to present to you the annual report for the year ended 31 December BUSINESS REVIEW Although the global economic environment during the year 2011 was unstable, the Group managed to achieve a 33.9% growth in turnover. The overall turnover for the year was HK$801.7million, as compared to HK$598.5 million for the year During the year, the demand for electronic products from the Group s customers in the United States market remained to be strong, especially for the demand on irrigation controller products. The performance of the Group s biodiesel products segment had improved continuously, with sales revenue jumped from HK$10.2 million in 2010 to HK$16.6 million in The Air Pollution Control (Motor Vehicle Fuel) (Amendment) Regulation 2010, which regulates the use of biodiesel in Hong Kong as alternative green energy, had become effective since 1 July 2010 and this has helped to promote the use of biodiesel in Hong Kong. On the other hand, the sales revenue from components for electronic products, and plastic moulds and plastic components had reduced as the market for these products remained to be competitive and the Group intends to focus more of its resources on other higher profit margin products. The net profit attributable to owners of the Company for the year is HK$33.4 million, compared to HK$37.2 million for the year The overall gross profit margin for the year had reduced from 18.4% in 2010 to 17.5% in The drop in gross profit margin was mainly due to the increase in direct labour costs and other production overheads, as a result of the increase in minimum wage level, consistent appreciation of Renminbi and general inflation in the People s Republic of China (the PRC ) during the year. In addition, there was a fair value loss on derivative financial instruments of HK$9.5 million and share-based payment expenses of HK$8.3 million had been recognised for share options granted during the year. In terms of geographical market, the United States continued to be the major market for the Group s products and accounted for approximately 53.7% of the total turnover for the year. Sales to customers in other markets such as Hong Kong and Europe had also increased. The Group will continue its efforts to secure new customers in different markets so that the turnover by geographical location can be spread more evenly. In view of the strong support from the government of the PRC on energy saving industry, the Group had diversified its operations into energy saving business segment. In January 2011, the Group has set up a wholly-owned foreign enterprise in the PRC to explore the business opportunities for energy saving business in the PRC. On 19 April 2011, the Group has established a cooperation platform with a PRC state-owned enterprise, China Potevio Company Limited ( China Potevio ), for the development of energy saving business in the PRC through the use of LED lighting equipment. However, this business segment was still in its development stage and no revenue had been generated from this business segment during PROSPECTS Regarding the electronic products segment, the global economy in 2012 will still be uncertain with a number of challenges ahead including the recent financial and credit crisis in Europe; the fluctuation in crude oil and commodity prices which may result in rises in unit cost for raw materials such as plastic resins, copper and other metal parts; the stability of Renminbi and United States dollars against Hong Kong dollars; the constant supply of skillful labour in the PRC at reasonable wage levels and the risk of inflation. The Group will continue its effort to tighten controls over production costs and overheads, and will improve production efficiency so as to maintain gross profit margin. In terms of geographical market, although the sales to United States customers had increased during the year 2011, it is still uncertain whether the United States economy will continue to improve in The Group will continue to devote efforts to explore new markets and new customers, especially in the Greater China market. It is expected that the economy of the PRC will continue to maintain a steady growth in During the year, the Group has been granted a government contract for the supply of approximately 3.5 million litres of B5 biodiesel to various government departments over a period of 16 months from January This contract will provide a constant source of income for the biodiesel products segment in 2012 and will provide additional momentum to the Group to develop its biodiesel business in Hong Kong. The Group believes that the demand for biodiesel products will increase in a fast pace in the future, resulting in operating profit for its biodiesel business. 2 ALLTRONICS HOLDINGS LIMITED Annual Report 2011

5 Chairman s Statement In February 2012, the Group has entered into an energy management contract with a leading electrical appliances retailer in the PRC. Such energy management contract business can provide an additional stable source of income to the Group. The Group will continue its negotiations with potential customers on other energy saving projects using LED lighting equipment, and will enter into more energy management contracts in the future. The Group expects there will be significant potential for energy saving business in the PRC. DIVIDENDS The Board recommends a final dividend of HK5.0 cents per ordinary share, together with the interim dividend of HK4.0 cents per ordinary share paid in October 2011, the total dividend for the year will be HK9.0 cents per ordinary share. The Board believes that after the payment of the proposed final dividend, the financial position of the Group remains to be strong and the Group still has sufficient liquid funds to finance its operations and to prepare for future growth. APPRECIATION On behalf of the Board, I would like to thank the management team and all of our staff for their hard work and contribution in the past year. Lastly, I wish to take this opportunity to extend my sincere gratitude to all our shareholders, customers and business partners for their continuing support. Lam Yin Kee Chairman Hong Kong, 27 March 2012 ALLTRONICS HOLDINGS LIMITED Annual Report

6 Management Discussion and Analysis FINANCIAL REVIEW Turnover Total turnover for the year has increased by 33.9% to HK$801.7 million, as compared to HK$598.5 million for the year The turnover analysis by category of products for the two years ended 31 December 2011 and 2010 respectively are as follows: HK$ 000 HK$ 000 Sales of electronic products 785, ,341 Sales of biodiesel products 16,613 10, , ,529 Sales of electronic products included the sales of finished electronic products; plastic moulds; plastic and other components for electronic products. The overall sales of electronic products had increased by 33.4% as compared to last year due to the increased demand from customers, especially from customers in the United States. Total sales revenue from customers in the United States had improved from HK$300.0 million for the year 2010 to HK$430.8 million this year. In particular, the sales of the Group s major product, irrigation controllers, have increased by 66.8% to HK$310.9 million. On the other hand, total sales of components for electronic products, including transformers and adapters, had decreased by 21.0% due to drop in demand from customers. Total sales of plastic moulds and plastic components also dropped slightly by 5.6%, as the market for these component products remained to be competitive and the Group intends to focus more of its resources on other higher profit margin products. The performance of the biodiesel products segment had improved continuously, with total turnover increased from HK$10.2 million in 2010 to HK$16.6 million in The Air Pollution Control (Motor Vehicle Fuel) (Amendment) Regulation 2010, which regulates the use of biodiesel as alternative green energy in Hong Kong, had become effective since 1 July This has helped to promote the use of biodiesel in Hong Kong. On 25 November 2011, the Group has been granted a government contract for the supply of 3,533,000 litres of B5 biodiesel for delivery to various government departments over a period of 16 months, commencing from January This represents an official recognition of the quality of the Group s biodiesel products and further confirms the leading position of the Group in the biodiesel market in Hong Kong. Management expects that the demand for biodiesel products in Hong Kong will increase continuously in the future. In terms of geographical market, the United States continued to be the major market for the Group s products and accounted for approximately 53.7% of the total turnover for the year (2010: 50.1%). Sales to customers in other markets such as Hong Kong and Europe had also increased by 35.8% and 27.2% respectively. The sales to the PRC market had remained stable and amounted to HK$59.2 million for the year (2010: HK$60.8 million). The Group will continue its efforts to secure new customers in different markets so that the turnover by geographical location can be spread more evenly. In view of the strong support from the PRC Government on energy saving industry, the Group expects that there will be significant opportunity for energy saving business in the PRC. In January 2011, the Group has set up a wholly-owned foreign enterprise in the PRC to diversify its operations into energy saving business. Further on 19 April 2011, the Group has established a cooperation platform with a PRC state-owned enterprise, China Potevio Company Limited ( China Potevio ), for the development of energy saving business in the PRC through the use of LED lighting equipment. However, this business segment was still in its development stage and no revenue had been generated from this business segment during Gross profit The overall gross profit margin had reduced from 18.4% for the year 2010 to 17.5% for The drop in gross profit margin was mainly due to the increase in direct labour costs and other production overheads, as a result of the increase in minimum wage level, consistent appreciation of Renminbi and general inflation in the PRC during the year. 4 ALLTRONICS HOLDINGS LIMITED Annual Report 2011

7 Management Discussion and Analysis Operating expenses and other losses During the year ended 31 December 2011, total administrative expenses had increased from HK$56.7 million in 2010 to HK$76.9 million, mainly due to the increase in staff costs. Share-based payment expenses of HK$8.3 million had been recognised in the consolidated income statement for share options granted during the year. The net finance costs for the year had increased slightly by HK$375,000 due to increase in interest rates. The fluctuation on the exchange rate of Renminbi against United States dollars had resulted in a fair value loss on derivative financial instruments as at 31 December 2011, amounting to HK$9.5 million. Net profit attributable to owners of the Company Although the turnover and gross profit for the year have increased by HK$203.2 million and HK$29.9 million respectively, the net profit attributable to owners of the Company has decreased by HK$3.8 million. This is due to the fair value loss on derivative financial instruments of HK$9.5 million and the recognition of share-based payment expenses of HK$8.3 million for share options granted during the year. PRODUCTION FACILITIES The Group currently has three production plants in the PRC for the manufacturing of electronic products and components, two of which are located in Shenzhen, and one in Yangxi. During the year 2011, the Group spent approximately HK$1.7 million to acquire new plant and machinery, approximately HK$5.3 million to acquire motor vehicles and spent approximately HK$4.2 million on leasehold improvements to enhance its production capacity. The Group s biodiesel production facilities are located in Tuen Mun, Hong Kong with a current production capacity of approximately 18,000 tons of biodiesel on an annual basis. The Group believes that the current production facilities for the electronic products segment and the biodiesel products segment are sufficient for their production requirements in the near future. In January 2011, the Group has set up an office with LED testing facilities in Shenzhen to carry out its energy saving business. LIQUIDITY AND FINANCIAL RESOURCES AND CAPITAL STRUCTURE At 31 December 2011, the Group s total cash and cash equivalents, net of current bank overdrafts, amounted to HK$53.5 million. The net funds are sufficient to finance the Group s working capital and capital expenditure plans. At 31 December 2011, total borrowings of the Group amounted to HK$89.1 million, comprising bank overdrafts of HK$19.3 million, bank loans of HK$37.4 million, bills payable and trust receipt loans of HK$25.0 million, obligations under finance leases of HK$5.0 million and a loan from a customer of HK$2.4 million, all of which are denominated in Hong Kong dollars. The average effective interest rates for each of these borrowings at 31 December 2011 ranged from 3.7% to 6.5% per annum. The Group s trade receivable turnover, inventory turnover and trade payable turnover were approximately 57 days, 68 days and 59 days respectively for the year These turnover periods are consistent with the respective policies of the Group on credit terms granted to customers and obtained from suppliers. As at 31 December 2011, the Group s current assets had increased by 6.5% to HK$344.9 million compared to HK$323.9 million as at 31 December 2010 and the Group s total current liabilities had decreased by 1.2% to HK$204.7 million compared to HK$207.1 million as at 31 December The current ratio (current assets/current liabilities) as at 31 December 2011 was 1.68 times, which is at approximately the same level of 1.56 times as at 31 December During the year, the Company had not repurchased any of its own shares on The Stock Exchange of Hong Kong Limited (the Stock Exchange ). On 13 January 2011, the Company had granted a total of 15,900,000 share options to certain directors and employees at an exercise price of HK$2.31 per share. These share options are exercisable within a period of two years from 13 January 2011 to 12 January On 8 March 2011, a total of 100,000 share options had been exercised and resulted in the issue of 100,000 ordinary shares of HK$0.01 each. At 31 December 2011, the Company had in issue a total of 314,420,000 ordinary shares of HK$0.01 each. ALLTRONICS HOLDINGS LIMITED Annual Report

8 Management Discussion and Analysis CASH FLOWS The net balance of cash, cash equivalents and bank overdrafts at 31 December 2011 was HK$53.5 million, which had increased by HK$20.8 million compared to the balance at 31 December The net cash generated from operating activities for the year was HK$73.8 million. The net cash used in investing activities amounted to HK$9.4 million, which was mainly due to HK$8.0 million paid for the acquisition of property, plant and equipment; HK$9.2 million spent for purchase of financial assets at fair value through profit or loss and HK$7.2 million received from sale of financial assets at fair value through profit or loss. On the other hand, there was a net cash outflow of HK$44.4 million from financing activities in During the year, new borrowings of HK$17.6 million were obtained and HK$32.3 million was used to repay bank borrowings and finance leases and HK$28.3 million was paid to shareholders as dividend. PLEDGE OF ASSETS At 31 December 2011, the Group had total bank borrowings (excluding obligations under finance leases) of HK$81.7 million, out of which HK$35.8 million were secured by short-term bank deposits of HK$4.5 million, available-for-sale financial assets of HK$2.8 million and trade receivables of HK$2.5 million. In addition, a bank deposit of HK$0.5 million was pledged to a bank as security for bank guarantee given to a third party. GEARING RATIO Gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated statement of financial position) less trade related debts and cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated statement of financial position. At 31 December 2011, the Group did not have a net debt position. The gearing ratio as at 31 December 2010 was 11.2%. CONTINGENT LIABILITIES At both 31 December 2011 and 31 December 2010, the Group did not have any material contingent liabilities. EMPLOYEES At 31 December 2011, the Group had 2,734 employees, of which 83 were employed in Hong Kong and 2,651 were employed in the PRC. Salaries of employees are maintained at competitive levels. The Group operates a defined contribution mandatory provident fund retirement benefits scheme for all its employees in Hong Kong, and provides its PRC employees with welfare schemes as required by the applicable laws and regulations in the PRC. The Group also offers discretionary bonuses to its employees by reference to the performance of individual employees and the overall performance of the Group. Total staff costs, excluding directors emoluments, incurred by the Group for 2011 amounted to HK$137.0 million. The Company has also adopted a share option scheme on 22 June During the year, a total of 15,900,000 share options were granted at an exercise price of HK$2.31 per shares, with an exercisable period of two years from 13 January 2011 to 12 January On 8 March 2011, a total of 100,000 share options had been exercised. Saved as aforesaid, no other share options were granted, lapsed, cancelled or exercised. As at 31 December 2011, 15,800,000 share options had been granted and remained outstanding under the share option scheme. The Group did not experience any significant labour disputes or substantial changes in the number of its employees that led to any disruption of its normal business operations. The Board believes that the Group s management and employees are the most valuable asset of the Group and they have contributed to the success of the Group. FOREIGN EXCHANGE EXPOSURE Most of the Group s sales are denominated in United States dollars and most of the purchases of raw materials are denominated in Renminbi and Hong Kong dollars. Furthermore, most of the Group s monetary assets are denominated in Hong Kong dollars, United States dollars and Renminbi. 6 ALLTRONICS HOLDINGS LIMITED Annual Report 2011

9 Management Discussion and Analysis The Group s principal production facilities are located in the PRC whilst its sales proceeds are primarily settled in United States dollars or Hong Kong dollars. As such, management is aware of the potential foreign currency risk that may arise from the fluctuation of exchange rates between United States dollars, Hong Kong dollars and Renminbi. Although the foreign currency risk is not considered to be significant, management has taken action to minimise the risk. In particular, a substantial portion of the Group s borrowings were denominated in Hong Kong dollars. Management will continue to evaluate the Group s foreign currency exposure and take further actions as appropriate to minimise the Group s exposure whenever necessary. OUTLOOK Regarding the electronic products segment, the Group expects that the global economic environment in 2012 will continue to be challenging. In particular, the fluctuation in crude oil and commodity prices; the risk of continuing appreciation of Renminbi against United States dollars and Hong Kong dollars; the upward adjustment on the minimum wage levels in China and the risk of global inflation will result in higher material costs, production costs, finance costs and overhead. In order to remain competitive in the market, the Group needs to tighten its controls over production costs and overheads, and to improve production efficiency so as to maximize the gross profit margin. The Group will consider shifting a portion of these increased costs to customers through adjustment in selling price of its electronic products. In terms of geographical market, although the sales to United States customers had increased during the year 2011, it is still uncertain whether the United States economy will continue to improve in The Group will continue to devote efforts to explore new markets and new customers, especially in the Greater China market. It is expected that the economy of the PRC will continue to maintain a steady growth in The Group has diversified it business to biodiesel products since Biodiesel is a green alternative energy substitute for petroleum-based diesel. The government contract secured during the year for the supply of B5 biodiesel will provide additional momentum to the Group to develop its biodiesel business in Hong Kong. The Group expects that the demand for biodiesel products will increase at a fast pace in the future, resulting in operating profit for its biodiesel business. In view of the strong support from the PRC Government on energy saving industry, the Group will focus more of its resources on the development of energy saving business in the PRC. On 13 February 2012, the Group has entered into an energy management contract with Suning Appliance Co., Ltd., China Potevio and (which is a subsidiary of China Potevio) for the provision of energy saving solutions to at least 1,000 retail stores operated by Suning Appliance Co., Ltd. in the PRC, through the use of LED lighting equipment. Details of the energy management contract are set out in the announcement issued by the Company dated 13 February Energy management contract business can provide an additional stable source of income to the Group. As set out in the announcement issued by the Company dated 4 August 2011, the Group is in negotiation with HNA Hotel Group Limited for the provision of energy saving solutions to hotels managed by HNA Hotel Group Limited. The Group will continue its negotiations with HNA Hotel Group Limited and other potential customers on other energy saving projects using LED lighting equipment, and will enter into more energy management contracts in the future. DIVIDENDS In appreciation of the continuing support from our shareholders, the Board proposes the payment of a final dividend of HK5.0 cents per share. Together with the interim dividend of HK4.0 cents per share paid in October 2011, the total dividends paid or payable for the year 2011 will be HK9.0 cents per share. All dividends are paid in cash from funds generated from the Group s operations. The Group will have sufficient funds for its future expansion after the payment of dividends. The proposed final dividend of HK5.0 cents per share will be payable to shareholders whose names appear on the register of members of the Company on 11 June Subject to the passing of the relevant resolution at the forthcoming annual general meeting (the AGM ), the final dividend will be payable on or around 29 June The register of members of the Company will be closed from 7 June 2012 to 11 June 2012 (both dates inclusive), during which period no share transfers will be effected. In order to qualify for the proposed final dividend (subject to shareholders approval at the AGM), all share transfers must be lodged with the Company s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26/F, Tesbury Centre, 28 Queen s Road East, Hong Kong for registration no later than 4:30 p.m. on 6 June ALLTRONICS HOLDINGS LIMITED Annual Report

10 Directors and Senior Management Profile DIRECTORS Executive Directors Mr. Lam Yin Kee ( ), aged 65, is an executive Director and the Chairman of the Company, and the husband of Ms. Yeung Po Wah. Being the founder of the Group, Mr. Lam has over 40 years of marketing experience in the electronic industry and he is responsible for the Groups overall strategic planning and business development. He is also responsible for overseeing the overall operation in the sales and marketing and administration management of the Group. Prior to establishing the Group in 1997, Mr. Lam was the vice-chairman of a listed group in Hong Kong engaging in the manufacture and sales of electronic products for over 20 years. Ms. Yeung Po Wah ( ), aged 62, is an executive Director of the Company and the wife of Mr. Lam Yin Kee. Ms. Yeung is a co-founder of the Group and is responsible for the overall administrative functions and strategic planning of the Group. From 1967 to 1984, Ms. Yeung worked at the Bank of Tokyo with the last position being assistant manager of the remittance department. Mr. So Kin Hung ( ), aged 55, was appointed as an executive Director of the Company on 1 August Mr. So graduated from the University of East London (previously known as North East London Polytechnic ) in the United Kingdom in 1982, with a degree of Bachelor of Science (Electrical and Electronic Engineering). Mr. So joined the Group since 1997 and is also the general manager of two of the Group s subsidiaries, namely Alltronics Tech. Mftg. Limited and Shenzhen Allcomm Electronic Co. Ltd. He has over 25 years of experience in the electronic industry and is responsible for the marketing and engineering operations of the Group. Prior to joining the Group in 1997, Mr. So worked for a Hong Kong listed company as the assistant general manager. Non-Executive Director Mr. Fan, William Chung Yue ( ), aged 71, is a non-executive Director appointed by the Group in June Mr Fan is a solicitor in Hong Kong and a consultant to Fan & Fan, Solicitors. He is also a non-executive director of Chinney Investments, Limited and an independent non-executive director of Artini China Co. Ltd. since 1987 and 2008 respectively, both of these companies are listed on the main board of the Stock Exchange. Independent Non-Executive Directors Ms. Yeung Chi Ying ( ), aged 47, is an independent non-executive Director appointed by the Group in June Ms. Yeung is a fellow member of the Association of the Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants. She is a practicing certified public accountant in Hong Kong and has over 20 years of experience in auditing and accounting. Mr. Leung Kam Wah ( ), aged 65, is an independent non-executive Director appointed by the Group in June Mr. Leung has over 30 years of experience in the legal sector. He had worked as a judicial clerk in the Judiciary Department and a legal executive in Legal Aid Department of Hong Kong. Mr. Leung is now practicing as a law costs draftsman and operating a legal costing firm in Hong Kong. Mr. Yau Ming Kim, Robert ( ), aged 73, is an independent non-executive Director appointed by the Group in September Mr. Yau graduated from Wah Yan College and has extensive experience in the textile and clothing industry and worldwide trade affairs. He served as a trade officer in the Hong Kong Government from 1964 to In 1970, he was seconded to the General Agreement on Tariffs and Trade ( GATT ) Secretariat (now known as World Trade Organisation ) in Geneva, Switzerland and was awarded GATT Fellowship. Mr Yau had held senior positions including chief executive and managing director of various major international and local apparel companies since In addition, from 1998 to 2004, he was appointed as the vice chairman of Hong Kong Exporters Association, member of the Executive Committee of The Hong Kong Shippers Council and member of the Garment Advisory Committee of the Hong Kong Trade Development Council. Mr. Yau is currently an independent non-executive director of Parkson Retail Group Limited and Tungtex (Holdings) Company Limited since 1 January 2007 and 18 September 2006 respectively. The shares of these two companies are listed on the main board of the Stock Exchange. 8 ALLTRONICS HOLDINGS LIMITED Annual Report 2011

11 Directors and Senior Management Profile PUBLIC SANCTION On 15 April 2010, the Stock Exchange publicly censured the Company for its breach of Rule of the Listing Rules for failing to publish an announcement to disclose the deterioration of the Group s business performance in the first six months ended 30 June Mr. Lam Yin Kee and Ms. Yeung Po Wah were also publicly censured for their breach of director s undertakings in failing to use their best endeavours to procure the Company s compliance with Rule of the Listing Rules. Mr. So Kin Hung, Mr. Fan, William Chung Yue, Ms. Yeung Chi Ying, Mr. Leung Kam Wah and Mr. Barry John Buttifant (a former independent non-executive Director of the Company) were publicly criticised for their respective breaches of director s undertakings in failing to use their best endeavours to procure the Company s compliance with Rule of the Listing Rules. SENIOR MANAGEMENT Mr. Ieong Kin San, Sunny ( ), aged 61, is a co-founder of Southchina and currently is the marketing director and general manager of Southchina. He is responsible for overseeing the sales and marketing activities of Southchina and has over 30 years of management experience in manufacturing field. Mr. Lam On Bong ( ), aged 60, is a co-founder of Southchina and currently is the operation director of Southchina. He is responsible for the overall management of Southchina s production facilities in the PRC and has over 30 years of management experience in manufacturing field. Mr. Leung Hon Kwong, Jackson ( ), aged 59, is a co-founder of Southchina and is currently the financial and purchasing director of Southchina. He is responsible for overseeing the purchasing and financial functions of Southchina and has over 30 years of management experience in manufacturing field. Mr. Leung Fuk Cheung ( ), aged 48, is the company secretary and qualified accountant of the Group. Mr. Leung is responsible for the Group s overall financial administration. He has extensive experience in finance, accounting, auditing and company secretarial practice and is currently a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of the Chartered Certified Accountants. Mr. Leung has worked for international accounting firms for over 12 years. Prior to joining the Group in August 2002, Mr. Leung worked as the financial controller for a jewelry manufacturing company. ALLTRONICS HOLDINGS LIMITED Annual Report

12 Corporate Governance Report CORPORATE GOVERNANCE PRACTICES The Board is committed to maintaining high standards of corporate governance to safeguard the interests of the shareholders of the Company and recognises the importance of good corporate governance to the Company s healthy development. During the year ended 31 December 2011, the Company has applied the principles and complied with all applicable code provisions as set out in the Code on Corporate Governance Practices (the Code ) contained in Appendix 14 of the Rules (the Listing Rules ) Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Stock Exchange ), except for the limited deviation on the grounds and causes as explained below. The Board will review and update the current practices regularly to ensure compliance with the latest practices in corporate governance so as to protect and maximize the interests of shareholders. DIRECTORS SECURITIES TRANSACTIONS The Company has adopted the code of conduct regarding Directors securities transactions as set out in the Model Code for Securities Transactions by Directors of Listed Issuers (the Model Code ) as set out in Appendix 10 of the Listing Rules. Having made specific enquiry of all Directors of the Company, all Directors of the Company confirmed that they had complied with the required standards as set out in the Model Code throughout the year ended 31 December In addition, the Board also established written guidelines on no less exacting terms than the Model Code for relevant senior management of the Company in respect of their dealings in the securities of the Company. THE BOARD OF DIRECTORS AND BOARD MEETINGS The Board s primary responsibilities are to formulate the Group s long-term corporate strategy, to oversee the management of the Group and to evaluate the performance of the Group. The Board is also responsible for the approval of annual and interim results, risk management, major acquisitions, and other significant operational and financial matters. Matters not specifically reserved to the Board and necessarily relate to the daily operations of the Group are delegated to the management under the supervision of the respective Directors and the leadership of the Chairman. During the year ended 31 December 2011, there was no change in the composition of the Board. The Board currently comprises three executive Directors, one non-executive Director and three independent non-executive Directors as follows: Executive Directors: Non-executive Director: Independent non-executive Directors: Mr. Lam Yin Kee (Chairman and Chief Executive) Ms. Yeung Po Wah Mr. So Kin Hung Mr. Fan, William Chung Yue Ms. Yeung Chi Ying Mr. Yau Ming Kim, Robert Mr. Leung Kam Wah Mr. Lam Yin Kee is the Chairman and Chief Executive of the Group. Ms. Yeung Po Wah is an executive Director of the Group and the wife of Mr. Lam Yin Kee. Apart from this, there is no other direct family relationship amongst the members of the Board. The background and qualification of the Chairman of the Company and the other Directors are set out on pages 8 to 9. All Directors have sufficient experience to hold their positions so as to carry out their duties effectively and efficiently, and all of them have given sufficient time and attention to the affairs of the Group. The non-executive Director and the three independent non-executive Directors are person of high caliber with academic and professional qualifications in the fields of accounting, law, worldwide trade affairs and business management. They bring a broad range of financial, regulatory and commercial experience and skills to the Board, which contribute to the effective strategic management of the Group. Mr. Fan, William Chung Yue, Ms. Yeung Chi Ying and Mr. Leung Kam Wah are appointed for a term of one year commencing from 17 June 2005, and such appointments shall continue thereafter from year to year until terminated by either party with one month s written notice served to the other party. Mr. Yau Ming Kim, Robert is appointed as an independent non-executive Director of the Company from 1 September 2009 and was re-elected at the annual general meeting of the Company held on 28 May The appointment of Mr. Yau Ming Kim, Robert, shall continue thereafter from year to year until terminated by either party with one month s notice in writing. 10 ALLTRONICS HOLDINGS LIMITED Annual Report 2011

13 Corporate Governance Report Each of the independent non-executive Directors has given a written confirmation to the Company confirming that he/she has met the criteria set out in Rule 3.13 of the Listing Rules regarding the guidelines for the assessment of independence of Directors. The Board schedules to hold at least four full board meetings a year at approximately quarterly intervals. During the year ended 31 December 2011, four full board meetings were held and the attendance of the Board of Directors is set out as follows: Name of Director Number of board meetings attended Mr. Lam Yin Kee 4/4 Ms. Yeung Po Wah 4/4 Mr. So Kin Hung 4/4 Mr. Fan, William Chung Yue 2/4 Ms. Yeung Chi Ying 4/4 Mr. Yau Ming Kim, Robert 4/4 Mr. Leung Kam Wah 4/4 Every Board member has a duty to act in good faith, with due diligence and care, and in the best interests of the Company and its shareholders. Apart from the above regular meetings of the year, the Board will meet on other occasions when a board-level decision on a particular matter is required. Directors shall have full access to information on the Group and are able to obtain independent professional advice whenever deemed necessary by the Directors. No request was made by any Director for such independent professional advice in The Company Secretary shall prepare minutes and keep record of matters discussed and decisions resolved at all Board meetings, which will be available for inspection by Directors upon request. The Company has arranged for appropriate liability insurance to indemnify its directors and officers for their liabilities arising out of corporate affairs. The insurance coverage is reviewed annually. CHAIRMAN AND CHIEF EXECUTIVE Under Code Provision A.2.1 of the Code, the role of Chairman and Chief Executive should be separated and ought not be performed by the same individual. The Company does not have a separate Chairman and Chief Executive and Mr. Lam Yin Kee currently holds both positions. The Board believes that vesting the roles of both Chairman and Chief Executive in the same person provides the Group with strong and consistent leadership and allows for more effective planning and execution of long term business strategies. However, the Board will review the roles of Mr. Lam Yin Kee acting as the Chairman and Chief Executive regularly, and may segregate the roles to two Directors, if the Board believes that it is for the best interest of the Company and the shareholders. APPOINTMENT AND RE-ELECTION OF DIRECTORS In accordance with the Company s Articles of Association, at each annual general meeting one-third of the Directors for the time being (or, if the number is not a multiple of three, the number nearest to but not less than one-third) shall retire from office by rotation. Mr. Lam Yin Kee, Mr. So Kin Hung and Mr. Fan, William Chung Yue had been re-appointed at the last Annual General Meeting held on 18 May Pursuant to Articles 86(3) and 87 of the Company s Articles of Association, Ms. Yeung Po Wah, Ms. Yeung Chi Ying and Mr. Leung Kam Wah shall retire at the forthcoming annual general meeting and being eligible, offer themselves for re-election. ALLTRONICS HOLDINGS LIMITED Annual Report

14 Corporate Governance Report All directors (including executive, non-executive and independent non-executive directors) are subject to election for appointment by shareholders at the annual general meeting once every three years. None of the Directors who are proposed for re-election at the forthcoming annual general meeting has a service contract with the Company which is not determinable by the Company within three years without payment of compensation (other than statutory compensation). The notice period for the termination of the service contracts with executive Directors by either party is not less than three months. The notice period for the termination of appointment of non-executive Directors and independent non-executive Directors by either party is not less than one month. NOMINATION OF DIRECTORS During the year, the Company did not have a nomination committee. The Board is responsible for considering the suitability of a candidate to act as a director, and approving and terminating the appointment of a director. The Chairman is responsible for identifying suitable candidates for members of the Board when there is vacancy or an additional director is considered necessary. The Chairman will propose the appointment of such candidates to each member of the Board for consideration and each member of the Board will review the qualifications of the relevant candidates for determining the suitability to the Group on the basis of their qualifications, experience and background. The decision of appointing a director must be approved unanimously by the members of the Board and make recommendation to the shareholders meeting for approval. In order to comply with the recent amendments to Listing Rules which will become effective from 1 April 2012, a nomination committee (the Nomination Committee ) will be established with written terms of reference effective on 1 April The Nomination Committee will be chaired by Mr. Lam Yin Kee (the Chairman of the Board) and other members will include Ms. Yeung Po Wah, Ms. Yeung Chi Ying, Mr. Yau Ming Kim, Robert and Mr. Leung Kam Wah. REMUNERATION COMMITTEE According to the Code, the Company has set up a Remuneration Committee on 22 June The Remuneration Committee has a minimum of five members, comprising a majority of independent non-executive Directors. During the year, the Chairman of the Remuneration Committee was Mr. Lam Yin Kee and other members include Ms. Yeung Po Wah, Ms. Yeung Chi Ying, Mr. Yau Ming Kim, Robert and Mr. Leung Kam Wah. The Remuneration Committee schedules to meet at least once every year and the quorum necessary for meeting is two. Effective from 1 April 2012, Ms. Yeung Chi Ying will become the Chairman of the Remuneration Committee and Mr. Lam Yin Kee will remain as a member of the Remuneration Committee. The duties of the Remuneration Committee mainly include: a) to make recommendations to the Board on the Company s policy and structure for all remuneration of Directors and senior management and on the establishment of a formal and transparent procedure for developing policy on such remuneration; b) to have the delegated responsibility to determine the specific remuneration packages of all executive Directors and senior management, including benefits in kind, pension rights and compensation payments (including any compensation payable for loss or termination of their office or appointment) and make recommendations to the Board of the remuneration of nonexecutive Directors. The Remuneration Committee shall consider factors such as salaries paid by comparable companies, time commitment and responsibilities of the Directors, employment conditions elsewhere in the Group and desirability of performance-based remuneration; c) to review and approve performance-based remuneration by reference to corporate goals and objectives resolved by the Board from time to time; d) to review and approve the compensation payable to executive Directors and senior management in connection with any loss or termination of their office or appointment to ensure that such compensation is determined in accordance with relevant contractual terms and that such compensation is otherwise fair and not excessive for the Company; 12 ALLTRONICS HOLDINGS LIMITED Annual Report 2011

15 Corporate Governance Report e) to review and approve compensation arrangements relating to dismissal or removal of Directors for misconduct to ensure that such arrangements are determined in accordance with relevant contractual terms and that any compensation payment is otherwise reasonable and appropriate; f) to ensure that no Director or any of his associates is involved in deciding his own remuneration; g) to advise shareholders on how to vote with respect to any service contracts of Directors that required shareholders approval under Rule of the Listing Rules; and h) to consider other topics, as defined by the Board. The Remuneration Committee had two meetings in 2011 which was attended by all members of the Remuneration Committee to discuss and review the bonus payment policy and the pay trend. The Company has adopted a share option scheme on 22 June 2005, which serves as an incentive to attract, retain and motivate talented eligible staff, including Directors. Details of the share option scheme are set out in the Report of the Directors on pages 18 to 19. The emoluments payable to Directors will depend on their respective contractual terms under employment contracts. Details of the Directors emoluments are set out in note 10 to the financial statements. AUDIT COMMITTEE The Company established an Audit Committee on 22 June 2005 with written terms of reference in compliance with the Listing Rules. The Audit Committee comprises members of independent non-executive Directors only. The Audit Committee meets at least twice every year and the quorum necessary for meeting is two. Two meetings were held during the year under review. Details of the attendance of the Audit Committee meetings are as follows: Name of Member Number of meetings attended Ms. Yeung Chi Ying 2/2 Mr. Yau Ming Kim, Robert 2/2 Mr. Leung Kam Wah 2/2 The primary duties of the Audit Committee are as follows: Relationship with the Company s independent auditor (a) to be primarily responsible for making recommendation to the Board on the appointment, re-appointment and removal of the independent auditor, and to approve the remuneration and terms of engagement of the independent auditor, and any questions of resignation or dismissal of that auditor; (b) (c) to review and monitor the independent auditor s independence and objectivity and the effectiveness of the audit process in accordance with applicable standard. The Audit Committee should discuss with the independent auditor the nature and scope of the audit and reporting obligations before the audit commences; to develop and implement policy on the engagement of the independent auditor to supply non-audit services. The Audit Committee shall ensure that the provision by the independent auditor of non-audit services does not impair the independent auditor s independence or objectivity; ALLTRONICS HOLDINGS LIMITED Annual Report

16 Corporate Governance Report Review of financial information of the Company (d) to monitor integrity of financial statements of the Company and the Company s annual reports and accounts, interim results and, if prepared for publication, quarterly reports, and to review significant financial reporting judgments contained therein, before submission to the Board; (e) In regard to (d) above: (i) (ii) members of the Audit Committee must liaise with the Company s Board, senior management and the person appointed as the Company s qualified accountant. The Audit Committee must meet, at least once a year, with the Company s independent auditor; the Audit Committee should consider any significant or unusual items that are, or may need to be, reflected in such reports and accounts and must give due consideration to any matters that have been raised by the Company s qualified accountant, compliance officer or independent auditor; and (iii) the Audit Committee should discuss problems and reservation arising from the financial statements, annual reports and accounts, interim reports and quarterly reports (if applicable) and any other matters the independent auditor may wish to discuss (in the absence of management of the Company where necessary); Oversight of the Company s financial reporting system and internal control procedures (f) (g) (h) (i) (j) (k) (l) to review the Company s financial controls, internal control and risk management systems, and its statement in relation thereto prior to endorsement by the Board; to discuss with the management the system of internal control and ensure that management has discharged its duty to have an effective internal control system; to consider any findings of major investigations of internal control matters as delegated by the Board or on its own initiative and management s response; to review the Company and its subsidiaries financial and accounting policies and practices; to review the independent auditor s management letter, any material queries raised by the independent auditor to management in respect of the accounting records, financial accounts or systems of control and management s response; to ensure that the Board will provide a timely response to the issues raised in the independent auditor s management letter; to review arrangements by which employees of the Company may, in confidence, raise concerns about possible improprieties in financial reporting, internal control or other matters. The Audit Committee should ensure that proper arrangements are in place for the fair and independent investigation of such matters and for appropriate follow-up action; (m) to act as the key representative body for overseeing the Company s relation with the independent auditor; (n) (o) to report to the Board on the matters set out in this term of reference; and to consider other topics, as defined by the Board. 14 ALLTRONICS HOLDINGS LIMITED Annual Report 2011